Economic Concept’s

1- Determinants Of Demand

Demand can be defined as the consumer’s desire to purchase along with the ability to purchase it.

Some Determinant’s of Demand

·         Price

·         Tastes and preferences of customers

·         Income of the consumer

·         Expectation of consumer

·         Distribution of income

·         Information asymmetry

Some examples to illustrate how determinants of demand affect demand

Example 1 :- Every time a new Samsung Galaxy S series smartphone launches,there are many customers who do not buy it immediately, they wait for the price of the product to come done in the future due to various reasons. This example helps us to understand that demand depends upon expectations of the consumers.

Example 2 :- In the year 2012 during my school fests, me and a couple of my friends had decided to open up a coffee stall as it was winter season and so we had thought that people will buy it, but unfortunately the opposite happened. Most of our prospective customers were students and they were lease interested in having tea or coffee. In the following year we decided to make ‘Chaat’ items, and this time it had worked really well.

This example shows that demand depends upon the taste and preference of the customers.

2-Determinants Of Supply

Supply is the willingness and ability of the producer to offer the goods in the market for sale at various prices.

Some Determinants Of Supply :-

·         Cost of production

·         Seasonality

·         Aim of producers

·         Government taxes

·         Profitability of alternate products

Some examples to illustrate how determinants of Supply affect Supply

Example 1 :- Reliance Jio when it first came into the Indian market with its surprisingly affordable tariff plans, the other players in the market could have also done the same by subsequently reducing the prices, but they could not do this because if they would have done that then the cost prices of providing those services would not have been covered.

 This example shows that Cost of Production plays an important role in determining supply. Had the production been considerable low then the other companies could have taken a step immediately to counter Jio.

Example 2 :- Every time, when I shop during the festive season I notice one difference when I compare it to the time of shopping during normal weekends. The availability of stock and the variety of collections during the festive period increases. This example shows us that supply is seasonal(Seasonality). Suppliers tend to increase supply as and when they know that the products are going to be sold in more quantities during these situations.

3- Price Elasticity of Demand

This concept talks about the change that happens in the quantity demanded of a particular product or service due to the change in its price.

Some examples to illustrate Price Elasticity Of Demand

Example 1 :- My favorite pastime is riding motor cycle and going on long trips with friends ,but because of the increase in petrol prices we had to reduce our frequency as well as distance of travel to as we could not spend much on petrol.

This example tells us that a rise in price of petrol imposed a serious effect on its quantity demanded.

Example 2:- I had to travel to my grandmother’s house many times a week, to check for her health. I preferred to travel by cab as that would save me a lot of time but had to travel mostly by bus as that would be more budget friendly, but when Ola launched the option of ‘Ola Share’, the price per trip considerably came down and so this enabled me to travel more by cab which saved a lot of time.
This example explains how the fall in price in turn increased my frequency of travel(increase in quantity demanded).

4-Law Of Diminishing Marginal Utility

This law states that the more of a good that one obtains in a specific period of time , the less the additional utility is derived from an additional unit of the good.

Some examples to illustrate Law Of Diminishing Marginal Utility

Example 1 :- Previously there was no place to visit or chill around near the locality where I stay. Then few months earlier the Municipality build a park nearby. Just after its inauguration, me and my friends used to visit the park every day and spend some time. We used to have a great time. But when this continued for a couple of weeks on a stretch, we started feeling bored of it and the experience was not like it was on the first day.

This example shows that the additional satisfaction I got by visiting the park diminished every single day after the first couple of days, thereby adding less and less value to the total utility.

Example 2 :- Every time my mother makes a favorite dish that I like, I think that I will consume that food item in large quantity, As I start eating I feel great and eager to eat more, but as I proceed I observe that I don’t feel the same for the food item as it was before having it and with each a bite after that, the urge in me to have more decreases or the utility I derive for every additional consumption keeps of decreasing.

This example tells us how the utility initially increased but with more and more consumption, the additional satisfaction derived kept on decreasing.

5-Opportunity Cost

Opportunity cost can be said as the units given up to attain or choose one of the available choices. It is the cost of the next better alternative.

Some examples to illustrate Opportunity Cost

Example 1:- During the time of preparing for CAT exam ,I came across a problem; my parents had suggested me to join a coaching center, but the coaching center was far from my home and it took 2 hrs to reach. This meant 4 hrs (2 hrs to go and 2 hrs to come back) of traveling a day. At that moment I had to decide between studying on my own and getting 4 hrs extra a day or going to the coaching center and losing the same time. Finally I chose to study by myself as that seemed a better alternative and in this process the opportunity cost was that I could not attend the coaching classes.

This example tells us how opportunity cost helped in deciding the right option by eliminating the next best alternative.

Example 2:- Two groups of friends, one from my school and the other from my colony, had approached me, one of them to go for a movie and the other one to visit the zoo. A decision had to be made between the two. I had already gone to the zoo before and so I chose to go for the movie. In this regard the opportunity cost is not going to the zoo.

This example tells about the concept of opportunity cost as we see that one alternative is chosen over the other that gives less satisfaction.